China to let NSSF manage $322 billion in local pension funds: sources

Workers cleaning windows of a building are seen behind China's national flag at a commercial district in Beijing April 20, 2015. REUTERS/Kim Kyung-Hoon

HONG KONG (Reuters) - China’s cabinet has approved plans for the manager of the country’s biggest pension fund to manage pension funds worth about 2 trillion yuan ($322 billion) for local authorities, two industry sources with direct knowledge of the matter said.

China is trying to strengthen its pension system to meet the huge demographic challenge of an already-shrinking working-age population as it looks to turn the economy into one driven by consumption and services rather than investment and exports.

The move for the National Social Security Fund (NSSF) to manage and invest more pension funds on behalf of provincial authorities could benefit the stock market, which has fallen 20 percent over the last two weeks.

“The plan has been approved by the State Council (cabinet), the size could be around 2 trillion yuan,” said one source, adding that the stock slide might have hastened the approval decision.

The sources declined to be identified because they were not authorized to talk to the media.

Officials at the NSSF did not respond to repeated telephone calls seeking comment.

The NSSF has been managing pension funds worth about 100 billon yuan for the southern province of Guangdong since 2012, with a cumulative investment return of 17.3 billion yuan, according to the fund’s annual report.

The NSSF, which had total assets of about 1.5 trillion yuan at the end of last year, posted a return on investment of 11.43 percent in 2014, up from 6.2 percent in 2013 and 7 percent in 2012.

In April, China said it was expanding the investment scope of the country’s social security fund to allow it to buy more local government debt, investment trusts and shares in state-owned companies.